Alipay Moves Further Beyond Alibaba With Rakuten Tie-Up

Alipay, the electronic payment service affiliated with Alibaba Group, is broadening its business further through a tie-up with Japanese e-commerce company Rakuten.

Alipay has been expanding its role beyond Alibaba’s Chinese shopping sites in recent years, handling transactions for various bricks-and-mortar businesses as well as for international e-commerce operations.

The latest step in its expansion is its tie-up with Rakuten. Rakuten Global Market, Rakuten’s international shopping service, last week started accepting Alipay as one of its payment options, making it easier for Chinese consumers to use the Japanese company’s cross-border marketplace.

While Rakuten is a dominant player in Japan, its international operations are still relatively small. Rakuten’s Japanese marketplace has a total of 42,000 sellers, and about 10,000 of them also use Rakuten Global Market to sell their products to overseas customers. For now, only 250 sellers on Rakuten Global Market accept Alipay as part of the tie-up, but eventually all Rakuten sellers that can ship their products to China will accept Alipay, according to Alibaba.

Alibaba dominates China’s e-commerce market, and its shopping sites handle more transactions than those of Amazon.com and eBay combined. Both Alibaba and Rakuten operate marketplaces where many merchants sell their products to consumers — unlike Amazon.com, which for the most part is a direct seller of goods it keeps in its own warehouses.

Alipay was originally developed in late 2004 as a system to handle transactions on Alibaba’s Taobao marketplace, a shopping site that has hundreds of millions of users in China. But since then, Alipay has expanded far beyond Taobao. In China, consumers now use Alipay to pay for all kinds of transactions, from utility bills and restaurant meals to taxi rides. Alipay has also been trying to increase its international presence by offering its payment services to retailers in North America and Europe who sell their products to consumers in China.

Alipay’s tie-up with Rakuten comes as Alibaba is gearing up for an initial public offering in the U.S. Bankers and analysts say Alibaba’s IPO could raise more than $15 billion, possibly surpassing Facebook’s 2012 market debut as the largest technology IPO in U.S. history.

Still, Alipay won’t be part of the IPO because the payment affiliate is not part of Alibaba Group. Alipay used to be part of Alibaba Group, but Alibaba founder Jack Ma spun off the unit and brought it under his control in 2011, saying that the move was necessary because of Chinese government regulations that wouldn’t allow Alipay to continue its business as part of Alibaba Group.